I've heard different things from tax folks. I'm confused as to how I would even compute COGS for my product as it has many small incremental expenses, some of which are somewhat random and not consistent.
Is there a threshold at which a small biz needs to use COGs/Inventory as opposed to expensing inputs as materials/supplies?
@MauryM wrote:Is there a threshold at which a small biz needs to use COGs/Inventory as opposed to expensing inputs as materials/supplies?
Yes, and it is extremely high.
See https://www.irs.gov/instructions/i1040sc#en_US_2023_publink24329wd0e2328
Exception for small business taxpayers.
If you are a small business taxpayer, you can choose not to keep an inventory, but you must still use a method of accounting for inventory that clearly reflects income. If you choose not to keep an inventory, you won't be treated as failing to clearly reflect income if your method of accounting for inventory treats inventory as non-incidental material or supplies, or conforms to your financial accounting treatment of inventories. If, however, you choose to keep an inventory, you must generally value the inventory each year to determine your cost of goods sold in Part III of Schedule C.